Asian property giants sidestep Australia’s foreigner rules

A loophole in Australian property rules has helped overseas developers invest what industry executives believe were record levels in the country in 2015, casting doubt over the efficacy of curbs intended to keep a lid on soaring prices.

Newly built properties are exempt from rules on existing homes that restrict sales to foreigners, creating an opportunity for overseas investors to get into one of the world’s fastest growing housing markets.

That has left a thorny problem for Australia, grappling with the politically sensitive issue of unaffordable homes and a surge of cash from wealthy Chinese that has prompted regulators to consider tighter anti-money laundering rules.

A Reuters review of the last 20 Foreign Investment Review Board annual reports shows foreign-financed residential “off the plan” construction approvals hit a record total value of $16.4 billion in 2014, triple the previous year.

Analysts and industry players expect that 2015 will turn up an even higher number. Official data is released in April.

In an indication of demand, National Australia Bank has extended its largest Islamic financing to date for a $160 million real estate purchase in Brisbane by Singapore-based firm AEP Investment Management (AEPiM), part of Saudi Arabian conglomerate Al Rajhi Holding Group.

TH Properties, the real estate arm of Malaysia’s pilgrims fund Tabung Haji, completed a $220 million Sydney development in November.

Chinese buyers are also key, fuelling demand for companies like Land & Homes, which had its market debut last month, becoming the first listed developer to target predominantly overseas buyers.

“The mainland Chinese (want) to come to Australia for education and generally they are buying a residence so the family can come over and stay,” said Choon Keng Kho, a director of Land & Homes. “We can incorporate what they need into the design and, secondly, when dealing with them.”

Land & Homes paid $21.3 million for a four-floor government building in Australia’s No.3 city Brisbane, which it plans to convert into a 30-storey, 389-apartment tower.

Heading north

Australia’s two largest cities, Sydney and Melbourne, have seen double-digit price rises in recent years. Big Asian investors like Land & Homes are now turning their attention to Brisbane, left relatively unaffected as a stalling economy kept land values in check.

That city’s economy has since rebounded, attracting buyers to a subtropical city of 2 million people about 1,000 kilometres closer to Asia than Sydney. As a result, from 2013 to 2014, the average land value of residential development sites in Brisbane doubled.

The average value of offshore-originating development site purchases quadrupled while purchases from Australian developers were flat, according to agent CBRE.

“The entry of some of these participants has been pretty aggressive,” said Mark Steinert, CEO of Australian developer Stockland Corp., which in 2015 bought a stake in two locally-owned Brisbane residential tower projects but otherwise has limited exposure to apartments.

“Whether they make adequate profits or not, time will tell, but from a customer point of view, one would anticipate that it means more supply and therefore good opportunities.”

Guangzhou R&F Properties Co Ltd in 2015 paid Brisbane-based Metro Property Development A$46 million for a site for which that group paid $24 million six months earlier.

World Class Land, owned by Singapore conglomerate Aspial Corp, paid Australian developer Cornerstone A$36 million for a Brisbane apartment site, more than double what Cornerstone paid Metro in 2013.